VIVE LA FRENCH ECONOMY!
Last year, President Emmanuel Macron of France asked two leading economists—Olivier Blanchard of PIIE and Jean Tirole, a Nobel laureate from the Toulouse School of Economics—to chair a commission of experts to propose solutions to structural issues facing the economies of France and Europe as a whole. The emphasis was to be on problems that predated, but perhaps were worsened by, the COVID-19 pandemic. The 26-member commission, which included PIIE president Adam S. Posen and also Jean Pisani-Ferry of PIIE, published its findings in a pathbreaking and massive 440-page report that is stimulating a highly charged debate in France and Europe as Macron faces a tough re-election challenge next year.
The report focuses on the triple threat of climate change, economic inequality, and an aging population, with highlights summarized here for PIIE readers. All three challenges stem, in their own way, from technological progress that has raised living standards for some but left many others behind, while contributing to global warming and the problem of paying for the longer retirement of those still in the workforce. Technological advances can, of course, help to cut carbon emissions but will also bring disruptions. Fighting inequality requires technologies that create new jobs but also help those with jobs supplanted by technology.
The report concludes that there is more rhetoric than serious policy actions to address climate change. France’s effort to discourage carbon emissions through pricing mechanisms is hobbled by a multitude of exemptions and subsidies to fossil fuel companies. The report calls for the use of a carbon price across the board, arguing it is the only way to encourage rational decisions, be it by consumers, firms, or governments. It calls for more focus on climate solutions that do not deepen economic inequality. The creation of an independent body responsible for carbon price adjustments could remove the influence of political lobbying and increase public trust in climate solutions.
The fight against global warming will not be won without major technological breakthroughs. Europe needs a funding institution to support high-risk, high-payoff research projects and encourage green innovation, the economists say. The European Research Council (ERC) has proven European cooperation can achieve advances in research and development and should inspire the way the new institution operates.
As for demographic challenges, the fact that people are living longer is welcome. But aging populations are putting a greater burden on the pay-as-you-go social security system in France, forcing a choice between a decrease in benefits, an increase in contributions, or a higher retirement age. Given that French social security contributions are already high, the commission recommends incentives to increase the effective retirement age, accompanied by steps to make work more attractive to older workers.
One way to accomplish these goals might be to create a singular, points-based pension system, where workers accrue points proportional to their wages throughout their working lives, providing greater incentives to work while ensuring all workers receive livable benefits. To keep the pension system in balance, one solution could allocate two-thirds of further life expectancy increases to work; an additional three years of life expectancy would therefore add two years to the minimum pension-claiming age and extend retirement by one year. But this is not the only solution, and the choice between the legal retirement age and the level of pension benefits should be the result of an explicit and democratic choice.
The commission’s recommendations are relevant for all advanced industrial democracies. It has a tone of optimism tempered by warnings that policymakers must act to avoid compounding the fallout from these time bombs, leaving a potentially explosive economy for the next generation.
Info
The major future economic challenges, by Olivier Blanchard and Jean Tirole
How to Fix Economic Inequality?
Πηγή: piie.com
